…Says Nigeria May Escape Recession
By Etuka Sunday
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) yesterday voted to: reduce the Monetary Policy Rate to 12.5 per cent; Retain the Asymmetric Corridor of +200/-500 basis points around the MPR; Retain the Cash Reserve Ratio at 27.5 per cent; and Retain the Liquidity Ratio at 30 per cent.
CBN Governor, Godwin Emefiele who announced the committee’s decision shortly after the meeting in Abuja, says
the Committee decided by a unanimous vote to reduce the Monetary Policy Rate (MPR) and to hold all other policy parameters constant.
Emefile said, Seven (7) members voted for a reduction of the policy rate by 100 basis points, two (2) members by 150 basis points and one (1) member by 200 basis points.
He said, “on balance on whether to hold, loosen, or tighten, MPC was of the view that tightening of policy stance is for now inappropriate. This is because tightening will result in further contraction of aggregate demand, leading to decline in output, which is necessary to sustain the supply chain for growth recovery. Tightening will also increase cost of credit and reduce investment and impact negatively on output growth.”
The Committee Chairman said, although the Q1 2020 GDP turned out pleasantly at 1.87 per cent and rate of inflation somewhat moderated, Nigeria may escape a recession if concerted efforts are sustained to stimulate output.
“The Committee maintained that although a sharp decline in output growth is expected in Q2 2020 and may be the third quarter, if the current stimulus initiatives are properly implemented, the economy would reverse to positive growth by the fourth quarter. Hence the optimism on the part of the Committee that the economy may not slide into recession,” he said.
However, he said, “the Committee noted the stability in the banking system shown by the increase in total asset by 18.8 per cent and total deposits by 25.52 per cent (year-on-year). The performance of the Loan-to-Deposit Ratio (LDR) policy which was introduced in July 2019 showed that total credits increased by N3.1 trillion or 20.45 per cent, with manufacturing, retail & consumer loans, general commerce and agriculture as major beneficiaries.
“The Committee recognised that under the N100 billion Healthcare Sector Intervention Fund, the Bank has approved and disbursed N10.15 billion for some projects for the establishment of advanced diagnostic and health centres and the expansion of some pharmaceutical plants for essential drugs and intravenous fluids.
“As part of the N1trillion intervention targeted at Agriculture and Manufacturing firms, the Bank has further disbursed N93.2bn under the Real Sector Support Fund to boost local manufacturing and production across critical sectors.
“This consists of over 44 greenfield and brownfield projects. The Bank has also approved N10.9 billion to 14,331 beneficiaries under the N50 billion Targeted Credit Facility for households and SME’s, out of which N4.1billion has been disbursed to 5,868 successful beneficiaries.
“The Committee directed Management to reach out to the banks to encourage them to offer and disburse these funds to those priority sectors of the economy so as to stimulate aggregate demand and create more jobs.
“The MPC appraised the Federal Government’s resolve to maintain the core of its spending plans for 2020 as this remained vital for the attainment of the much-needed economic recovery,” he said.
Meanwhile, a renowned Professor of Finance and Capital Market at the Nasarawa State University, Keffi, Uche Uwaleke, said, “the MPC decision to cut the benchmark interest rate by 100 basis points down to 12.5% is a demonstration of the CBN’s sensitivity to the need to stimulate the economy and enable it withstand the negative impact of COVID’19 as well as the drop in oil revenue.
“Having signalled intention to adopt an accommodative stance in favour of growth, the CBN should put in place measures to ensure that it translates to lower lending rates by the banks to the real sectors of the economy,” he said.